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Risk-based auditing keeps Apple on top

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An excerpt from our new Supply Chain Risk & Innovation publication: http://innovation-forum.co.uk/supply-chain-risk-innovation.php

As a result of its industry-leading position, tech giant Apple's efforts on sustainability have come under significant scrutiny - especially when it comes to working conditions at factories in China. Now, via audits, reporting and increased engagement, it is making a difference.

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Risk-based auditing keeps Apple on top

  1. 1. PAGE 12 Essential insight • Apple’s supplier code of conduct is “one of the strictest in the industry”; it works with suppliers to help them comply with it, using auditing to measure progress. • Audits are prioritised based on geography, commodity risk, planned spending, and previous audit performance. • Excessive recruitment fees remain a big issue. Apple has made suppliers pay back to foreign contract workers more than $25.6m since 2008. • Excessive working conditions are endemic problem of manufacturing sector. • 100%ofthesmeltersinApple’ssupplychain participateinthird-partyconflictminerals audits.ButApplesaysthatisnotenough –ongoingengagementisalsoneeded. • Havingworkedhardtoaddressitsown carbonfootprint,thecompanyisnowhelping supplierstousemorerenewableenergy. Three-quartersofitscarbonfootprint originatesinthesupplychain. CORPORATE CASE STUDY: APPLE Risk-basedauditingkeepsAppleontop As a result of its industry-leading position, tech giant Apple’s efforts on sustainability have come under significant scrutiny – especially when it comes to working conditions at factories in China. Now, via audits, reporting and increased engagement, it is making a difference When you are one of the world’s biggest technology companies, the way you do business is inevitably going to attract attention. That is certainly the case for Apple, which has faced questions over its environmental footprint and over the working conditions in its suppliers’ factories, with Foxconn attracting particular attention because of the high number of worker suicides. Conflict minerals, bonded labour and child labour have been other areas of concern. The company has made strenuous efforts to address these and other sustainability issues – and it has outlined them in its recently published Supplier Responsibility 2016 Progress Report. Apple’s suppliers employ 1.6 million people in 20 countries and COO Jeff Williams highlights the strides Apple has made in protecting human rights by “stemming excessive work hours and addressing bonded and underage labour practices”. The report also provides a window into Apple’s efforts to preserve the environment through safe chemical use, conservation of natural resources, energy efficiency and renewable energy. The company says its supplier code of conduct is one of the strictest in the industry but that it works with suppliers to help them comply with it in creating safer working conditions, treating workers fairly and using environmentally responsible practices. Audits are one of its key tools for ensuring that suppliers are meeting the required standards. A risk-based approach is used to decide which suppliers to audit, prioritising audits based on geographic risk, commodity risk, planned spending, and previous audit performance. Concerns raised by external stakeholders as well as internal teams and anonymous complaints are considered and, in 2015, unannounced audits were performed. Non-compliant suppliers must submit a corrective action plan within two weeks of the audit, outlining how they will fix any problems. Apple reviews progress at 30, 60, and 90-day intervals to make sure they are on track. Any delayed progress is referred to senior management. Excessive hours A 2014 BBC Panorama documentary in the UK claimed that some workers in the Apple supply chain were made to work 18 days consecutively. The company says that “working excessive hours is an issue that’s endemic to the entire manufacturing industry”. It limits workers to no more than 60 hours with one day off a week. Apple says that by using work-hour tracking tools and weekly reporting, it managed to achieve 97% compliance with its policy in 2015, “a number that is virtually unheard of in our industry”. Since 2008, more than 9.2 million workers have been trained about their rights and more than 1.4 million people have participated in Apple educational programmes. Recruitment fees can push workers into debt before they even start work and are a form of bonded labour. When cases of bonded labour are discovered, suppliers are told to repay the fees to employees, whether or not the suppliers were directly involved in the recruitment process. Apple has made suppliers pay back to foreign contract workers more than $25.6m in excessive recruitment fees since 2008, including $4.7m in 2015. The company is similarly strict on underage workers. If factories are found to be employing underage labour, suppliers have to return children to their homes, pay for their education at a school of the family’s choice and continue to provide income for basic needs until they reach the legal working age, at which stage they must be offered a job. Conflict minerals is another important issue, with metals such as gold, tin, tantalum and tungsten, which are important components of Apple products, often originating in areas controlled by armed groups. The company declared in December CORPORATE INSIGHTSUPPLY CHAIN RISK & INNOVATION Since 2008, more than 9.2 million workers have been trained about their rights – and 1.4m participated in educational programmes.
  2. 2. PAGE 13 2015 that 100% of the identified smelters and refiners in Apple’s supply chain for current products were participating in an independent third-party conflict minerals audit programme. But illustrating the complexity of the conflict minerals issue, the company says: “While this is an important milestone, and may be viewed by some companies as grounds to declare their products ‘conflict-free’, we believe participation in third-party audit programmes alone is not enough. Ongoing engagement is critical, because some smelters that have completed third-party audits have minerals that are supplied by mines allegedly involved with armed groups.” Driving reductions downstream The company adds that its push for more rigorous environmental standards and renewable energy production has delivered substantial results: suppliers have diverted more than 73,000 tonnes of waste from landfills, its Clean Water Programme has In first year of energy efficiency programme, suppliers prevented more than 13,800 tonnes of CO₂ CORPORATE INSIGHTSUPPLY CHAIN RISK & INNOVATION saved more than 3.8bn gallons of freshwater and in the first year of its energy efficiency programme, suppliers have prevented more than 13,800 tonnes of carbon emissions. Apple, which announced in early 2016 that 93% of its facilities worldwide run on renewable energy with facilities in 23 countries already 100% renewable, is also helping its suppliers to implement renewable energy projects. Almost three-quarters of the company’s carbon footprint originates in its supply chain and, as part of its clean energy programme, which was launched in 2015 to cut supply chain emissions, the company is working with suppliers to install more than 2GW of clean energy in China alone. Foxconn is set to install 400MW of solar energy by 2018, enough to power its Zhengzhou iPhone factory. 2015 also saw the launch of a waste diversion scheme at 22 factories to help suppliers work towards becoming zero-waste facilities. Measures include reusing internal packaging, shipping packaging materials back to vendors for reuse and cutting food waste in worker canteens. To address a shortage of environment, health and safety (EHS) skills in the workforce, Apple has had an EHS Academy since 2013, educating local managers on issues such as environmental protection, air pollution, water and chemical management, and emergency preparedness in an 18-month curriculum that involves managers creating and implementing real EHS projects that improve working conditions at their facilities. Since the academy’s launch, 2,460 of these schemes have been launched, the company says. Apple is generally seen to have made good progress to becoming more sustainable with significant progress on worker conditions, conflict minerals and environmental issues, but there is still more it can do, including increasing transparency around its recycling programme and extending the life cycle of its products. ★ APPLE FACTS: Product of a 1.6m supplier workforce $25.6M: the amount Apple has made suppliers pay back to foreign contract workers in excessive recruitment fees since 2008 93% of Apple facilities worldwide run on renewable energy

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